Brazil’s Transfer Pricing Model: Change is Coming

If there’s one transfer pricing outlier in the world, it’s undoubtedly Brazil. The country’s transfer pricing model isn’t based on the arm’s length principle—instead, it adheres to fixed margins as opposed to comparability analyses. But not anymore. Soon, the tax administration will be putting a new transfer pricing regime to work—one that aligns with OEDC guidance. What can you expect?

Change—and not just in regulations, but in practice, too. Right now, accountants handle much of Brazil’s transfer pricing, but that work will shift over to economists, who can use models to determine comparable pricing. Brazil will embrace the arm’s length principle and the master and local files will be required with all their usual components:

Required Components of the Master and Local Files

• Comparability analyses
• All OECD methods will be accepted, including the transactional net margin and transactional profit methods
• Functional analyses, which must identify functions, assets, and risks assumed by related parties

Given the new requirements, taxpayers will have to get used to higher compliance costs, the need for more training, and tax uncertainty. Like their new transfer pricing requirements, something else they’ll have in common with the rest of the world.